AT&T: Killing Unlimited Data Doesn't Hurt Our Earnings

AT&T (s t) today released quarterly results, highlighting a record 3.2 million iPhone activations, 13 percent higher earnings and the sixth consecutive period of growth in postpaid average revenue per subscriber (ARPU), now at $62.63. The second largest carrier in the U.S. also experienced a drop in postpaid churn, with 1.01 percent of customers defecting to other carriers in the second quarter. To say that the exclusive deal to carry Apple’s iPhone (s aapl) and iPad 3G in the U.S. is fueling AT&T, would be an understatement as the carrier’s financials continue their upward trends.

While AT&T set a new high for ARPU, it recently discontinued the $30 monthly unlimited data plans for new customers in favor of limited $15 and $25 plans, which could be a drag on ARPU in the future. Indeed on today’s earnings call, the company said adoption of tiered data plans “may reduce the growth rate in the next year.” A reduced growth rate doesn’t necessarily mean zero growth, however — it means slower growth. The company added on today’s call that ARPU wasn’t hurt as badly as it had expected. AT&T anticipated that most smartphone customers would migrate down to the $15 plan, but instead, more dropped to the $25 plan. And the majority of iPad 3G owners are opting for the higher plan as well.

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From an end-user perspective though, the iPhone has also been the worst thing to happen to AT&T in some ways. Demand for smartphone data has routinely outstripped supply causing dropped calls and limited connectivity, especially early on as iPhone adoption ramped up in large metropolitan markets. But AT&T has shown improvements through infrastructure spending, reporting today 3G dropped calls are down 23 percent in Manhattan while 3G download speeds are up in New York City from six months ago. The company says that San Francisco customers — traditionally those facing the most network challenges with smartphones — will see improvements roughly 90 days after those in New York City. This is slower than AT&T had promised back in January.

The carrier also confirmed additional network upgrades to HSPA+ with the intent to begin doubling theoretical network speeds by the end of 2010, while also starting trials of a 4G LTE network within the next few months. Such upgrades will compete with T-Mobile’s current 21 Mbps HSPA+ upgrade, expected to be completed by year end, and Verizon’s (s vz) initial deployment of LTE in approximately two dozen markets this year.

Unfortunately, the vast majority of phone users do not have a clue what a kilobyte, megabyte, or gigabyte is to save their life. So metered plans are inherently user-hostile. The fact that 98% of their users were under 2 gigabytes even though they were on unlimited plans tells you that unlimited plans were working fine as far as network congestion. Even with no counting megabytes, 98% of users were using a very reasonable 2 gigabytes per month. They should have changed unlimited to 10 gigabytes so that the 98% have enough headroom not to have to count data while the users who go over 10 gigabytes have to pay more for being very heavy data users.

I am living proof that it does directly hurt their earnings, because I am not buying the iphone4 having decided it was the only personal data plan phone I want AFTER they cancelled the unlimited plan. Sucks for me… and ATT.